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If a tipping point has a look, then it might resemble the U.S. stock market move last week to within shouting distance of all-time highs. Equities scored another impressive gain of more than 1%, with mega-caps outperforming, bringing January's rise alone to a scorching 5.4%.

The rally has made evident that a significant change in investor sentiment is taking place—toward stocks and away from bonds—and it bears attention. How firmly entrenched that new love for equity is in the minds of investors remains unclear, but bonds, not stocks, are now in the uncomfortable position of having to prove their long-term value.

Some of the rise last week can be attributed to the newfound conciliatory attitude by House Republicans on the debt ceiling. But the stock market is "running out of tail risks" now, says David Kelly, chief global strategist for JPMorgan Funds Management, referring to outsized risks.

"It's not like there aren't any market headwinds, such as potentially modest U.S. growth, but the market's worry about something disastrous happening is diminishing," Kelly says. "Bonds are not looking that attractive," he adds.

Last week, the Dow rose 1.8%, or 246 points, to 13,895.98, less than 2% from its all time high. The Standard and Poor's 500 index closed above 1500 for the first time in five years, picking up 1.1%, or 17, to 1502.96, and is off 5% from all-time high of 1565 in 2007. The Nasdaq Composite rose 15 points, or 0.5%, to 3149.71. U.S. 10-year Treasury prices, meanwhile, fell last week.

The market's price-to-earnings ratio is now nearing 14 times consensus 2013 analyst estimates, which by historical measures is neither cheap nor particularly expensive. But the stock market rise "has nothing to do with the absolute stock P/E and everything to do with the valuation relative to bonds," notes Kelly.

Each major worry about political action in Washington D.C., be it fiscal-cliff or debt-ceiling negotiations, has come and gone and nothing really bad happened, Kelly says. It's causing bears to capitulate.

In a way it's not surprising that the markets seem to want to go higher, thanks to central bank monetary easing policies, adds Martin Leclerc, chief investment officer of Barrack Yard Advisors.

There are dozens of central banks around the world engaged in cooperative monetary easing, and that's catnip for stocks. "It reminds me of the line from Col. Kilgore in Apocalypse Now: 'If I say it's safe to surf this beach, Captain, then it's safe to surf this beach.' The foot soldiers believe the central banks and are surfing," he says.

Longer term, the stock market will have to deal with the likely end of easy money, perhaps sooner than expected. The Federal Reserve has to ask itself, says JPMorgan's Kelly, "Is this an economy that needs extraordinarily low interest rates?" Kelly believes the quantitative easing should be phased out. The Fed's Open Market Committee meets Tuesday.

The rally feels like it can go on for weeks, if not months, adds Leclerc. We agree, though, after eight consecutive days of gains, the chances of a short-term pullback are growing.

Lab Corp shares have been on the outs for some time, off 12% from their 2011 high of $100 set May 19, 2011. Over the same period the S&P 500 index is up 12%.

Despite the fact that the health-care sector is considered to be defensive during economic retrenchment, much of Lab Corp's underperformance comes both on the nation's economic sluggishness and on uncertainty last year over the Obama health care plan.

"It's levered to employment," says Mark Boyar, chairman of Boyar's Intrinsic Value Research. Near term, with joblessness hovering around 8%, people are foregoing some visits to the doctor, he notes. And Medicare and Medicaid reimbursements will be going down, too. But the latter are only about 20% of Lab Corp sales, he says. Moreover, Lab Corp is one of the lowest-cost providers of testing, so its smaller competitors will feel the pinch more.

Lab Corp has been tested by tougher times and come out with flying colors. From 2000 to 2011, a period that includes two recessions, the Burlington, N.C., firm posted year after year of higher sales and higher earnings without interruption.

The stock deserves another look, adds Boyar, whose firm holds a stake and has been adding shares of late. The economy and employment will get better, and that means the drop in Lab Corp's share price could represent an opportunity.

Investors fears are obscuring the importance of testing. Clinical laboratory testing is an essential and cost-effective health-care tool, Boyar says. It represents just 3% of health-care costs, but influences some 70% to 80% of people's health care decisions, he says.

The market also seems to be ignoring that the new health-care plan significantly raises the number of Americans who will be covered by health insurance next year, some 30 million people. "That means more lab tests for Lab Corp to do," Boyar says.

The economy will get better and that will mean a rise in doctor visits, he predicts. More importantly, Lab Corp has a long-term tailwind behind it: America's aging population.

At its current quote, the stock is good value compared to its history, changing hands at about 12 times that $7.17 consensus analyst estimate for 2013. That price-to-earnings ratio is not much higher than its low of 11 times over the past 15 years. Bigger rival Quest trades at 13 times.

Boyar puts the stock's fair value at $137—55% higher than it is today—using a 9.5 times estimated 2014 earnings before interest, taxes, depreciation and amortization (Ebitda) of $1.4 billion. Lab Corp deserves a premium to the current ratio of eight times Ebitda, he contends. The company is scheduled to report fourth quarter results February 7. It's worth a look.

AS THE U.S. WITHDRAWS TROOPS from Iraq and Afghanistan, and our government attempts to rein in spending, it seems logical that profits at defense companies should come under pressure. Yet shares of the large defense companies remain near one-year highs.

In fact, large defense stocks have outperformed the broader market since the start of the decade. The Strategas Large Cap Austerity Index, which counts 13 defense companies among its 15 members, has outperformed the S&P 500 by about 400% since 1999.

Recently, investors may have been snapping up shares as part of a reflation trade that has boosted industrial names, says Daniel Clifton, head of policy research at Strategas Research Partners. Another possibility: The juicy dividends these companies pay out may be blinding investors to the risks. Lockheed boasts the highest dividend yield of the four, at 4.8%, and General Dynamics has the lowest, at 2.9%.

U.S. spending on defense—including the wars in Iraq and Afghanistan—has bounced between $680 billion and $705 billion annually since 2010. In 2005 the spending rate was closer to $500 billion annually, and in 2001 it stood near $300 billion.

Rick Whittington, an aerospace analyst with Drexel Hamilton, has been a bear on defense names and currently has sell recommendations on the above-named contractors. He expects revenues, margins and profits at the companies will decline as U.S. defense spending cuts become too large to be offset by cost cuts or revenue from purchases by foreign countries.

Defense companies are still enjoying robust margins from contracts they entered into during the War Years when the U.S. government needed equipment and wasn't in the position to haggle over prices, Whittington says. Average operating margins (as measured by earnings before interest and taxes) are now 11% to 12%, roughly double where they stood 10 years ago, he says.

Contract negotiations are apt to be much tougher going forward, and that's bound to cut into the contractors' margins and profits, Whittington says. And if Chuck Hagel is confirmed as the next Secretary of Defense, negotiations could also get tougher as he's seen as more of an outsider to the defense establishment than his recent predecessors.

Defense spending is expected to shrink by roughly $20 billion annually if the Washington politicians can come to an agreement on overall budget spending cuts. If they can't, and cuts automatically occur due to sequestration, the defense cuts could be closer to $55 billion annually for the next nine years. The actual spending on equipment and services could go down even more dramatically, as certain costs incurred by the Department of Defense, like health care, won't go down at all.

Yet defense companies—and most Wall Street analysts—are still expecting extremely strong results this year. Lockheed projects 2013 profits of $8.80 to $9.10 a share, a 5% increase from 2012 if the company hits the midpoint of the range. General Dynamics sees $6.60 to $6.70 in earnings this year, which disappointed analysts but is still above last year's results of $6.48. Raytheon does expect a slight decline in earnings per share, to a range of $5.16 to $5.31 in 2013, down from $5.71 last year. Northrop reports this week.

Strategas estimates that defense spending as a percentage of gross domestic product, now at at 4.4%, will go down to 3% in 2022 if sequestration occurs and 3.1% if it doesn't. When defense as a percentage of GDP declines, the multiples on defense stocks decline and shares underperform, Clifton says.